IMF, RI to sign agreement next week

JAKARTA (JP): A senior International Monetary Fund (IMF) official is confident the fund will be able to reach a final agreement with Indonesia next week after marathon negotiations since March 18.

The IMF first deputy managing director, Stanley Fischer, said yesterday the two parties had made substantial progress on nearly all issues except the country's huge offshore debts.

He indicated that Indonesia would probably be able to disburse the second US$3 billion tranche of the IMF-sponsored $43 billion rescue package this month.

"A letter of intent will be signed within the next week," Fischer said after a 75-minute meeting with President Soeharto at his private residence on Jl. Cendana, Central Jakarta.

"It (the disbursement) will be given approximately two weeks after the letter of intent is signed."

During the talks, Fischer was accompanied by IMF Asia Pacific Director Hubert Neiss, while Soeharto was flanked by Coordinating Minister for Economy, Finance and Industry Ginandjar Kartasasmita.

Both Fischer and Ginandjar declined to say who would sign the letter of intent.

The President signed the first letter of intent in January in which he pledged to implement a 50-point economic reform package in exchange for the IMF bailout package.

Indonesia later complained that the massive package failed to resolve the crisis and said some of the points could not be implemented because they could prompt social unrest.

When asked how to prevent a similar dispute occurring again in the future, Fischer said: "It is simply a question of making sure that the program is clearly understood, which has to be done with a clear way of monitoring and ensuring that it is done".

IMF Managing Director Michel Camdessus warned Indonesia that any further dithering by Jakarta on the reforms would be catastrophic.

"It is urgently important to get Indonesia's reform program back on track so as to strengthen the rupiah before the hyperinflation sets in," Camdessus was quoted by Reuters as saying in Washington on Thursday.

Fischer shared Camdessus' view and said: "It is understood by everybody that it is a critical moment for Indonesia's economy and the carrying out of the program is essential for its success."

A Japanese source who closely monitored the negotiations was also confident of the government's commitment to implement the painful economic reforms.

"We do believe the letter of intent can be signed on Monday. Our visiting Vice Minister of Finance Eisuke Sakakibara will be happy with this progress," the official, who spoke on the condition of anonymity, told The Jakarta Post yesterday.

A senior government official disclosed on Thursday the negotiations targeted a 47-percent inflation rate for this fiscal year, a 5 percent economic contraction and a 3.5 percent budget deficit.

The two parties however are still unable to find a comprehensive framework for the private sector's $73.9 billion offshore debts because the problems are too complicated.

But Fischer noted that the settlement of the corporate offshore debts was neither the responsibility of the government nor the IMF, and therefore, there was no plan to transfer the risk of the corporate debts to the government.

"There is no desire by anybody to transfer commercial risks to the government and that is the principle that has to be obeyed," Fischer said.

The settlement of the corporate debt problem was not incorporated in the first letter of intent signed last January.

"It is not our program. It is a matter between the creditors and debtors. We are just providing technical assistance and not more than that," Fischer said.

He said the fund did not object to the government's plan to adopt the Mexican model to settle the huge debts but cautioned it over the complexity of the method.

"It could not be more than a general framework because the details are very complicated and will take time, but we will need to make progress on this issue in the next few days," the senior economist noted.

The Mexican model refers to the Ficorca program under which the government assumes the foreign exchange losses on the loans but not the loans themselves.

The debts of Mexican companies were rolled over for about four years and they were allowed to repay in pesos rather than dollars to Ficorca, an institution set up by the government.

Creditors received their dues in dollars from Ficorca. (prb)